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On Wednesday, Coastal Financial Corp (NASDAQ:CCB), currently trading at $86.36 with a market capitalization of $1.29 billion, saw its price target increased by Raymond (NSE:RYMD) James from $88.00 to $100.00, while the firm maintained a Strong Buy rating on the stock. The revision followed Coastal Financial’s fourth-quarter earnings, which surpassed Wall Street’s earnings per share (EPS) expectations. According to InvestingPro data, the stock is trading near its 52-week high of $88.60, having delivered an impressive 102% return over the past year.
Raymond James highlighted the company’s "noisy" fourth-quarter results as a key factor in the decision to raise the price target. The firm’s analyst pointed out that Coastal Financial’s differentiated credit philosophy is gradually proving its worth, as evidenced by the December quarter’s results. The company’s business model, which boasts a de minimis credit risk, was further validated by the fact that 97.9% of net charge-offs were covered by partners during the fourth quarter.
The analyst also noted Coastal Financial’s active balance sheet management strategy, which included the sale of $845.5 million in loans during the quarter to manage risk. This trend is expected to persist as the company’s origination activity picks up pace. The company’s strategic approach has contributed to its solid financial health, earning a "GREAT" overall score from InvestingPro’s comprehensive analysis framework. The firm also announced the signing of letters of intent with three new larger national partners, which, despite the uncertain timing of their onboarding, points to an upward trend in balance sheet growth.
Despite a reduction in the reported net interest margin (NIM) forecast, Raymond James anticipates that the Banking-as-a-Service (BaaS) margin will continue to expand. The profitability of the CCBX segment is also expected to improve, with a growing contribution from fee income. The analyst believes that Coastal Financial will emerge as a winner in the BaaS space, benefiting from recent industry disruptions, as indicated by its strong partner pipeline.
The firm also expects Coastal Financial to ramp up investments in its risk and compliance infrastructure to handle the anticipated increase in volume from larger and additional partners. Raymond James argues that the current valuation of Coastal Financial does not fully reflect the significant potential earnings power of its BaaS segment (CCBX). While the stock trades at a relatively high P/E ratio of 28.2x and appears overvalued according to InvestingPro’s Fair Value model, the company’s strong revenue growth of 8.86% and robust analyst consensus suggest significant upside potential. As the company’s business model is validated and scales, the analyst expects to see multiple expansion, which suggests a favorable risk/reward scenario for the stock.
In other recent news, Coastal Financial Corp has been the center of various significant developments. The bank, renowned for its Banking as a Service initiatives, reported a robust quarter that outperformed overall market expectations, despite falling short of the high earnings per share forecast set by Raymond James. The financial institution’s performance was further bolstered by the signing of three new partner letters of intent in its BaaS endeavors and the successful sale of nearly twice as many CCBX loans compared to the previous quarter.
The company also received an updated price target from both Raymond James and Keefe, Bruyette & Woods, a reflection of confidence in the bank’s growth prospects. The new price target is set to $96.00, up from $92.00, following a positive evaluation of the bank’s recent capital raise.
Furthermore, Coastal Financial announced the initiation of an underwritten public offering of its common stock, intending to provide underwriters a 30-day option to purchase up to an additional 15% of shares at the public offering price, less any underwriting discounts and commissions. The proceeds from this sale are intended for general corporate purposes, including potential investment opportunities and supporting the bank’s growth initiatives.
Keefe, Bruyette & Woods, Hovde Group, Raymond James & Associates, and Stephens Inc. are participating in the offering. These are the recent developments with Coastal Financial Corp.
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